Article excerpt

The sector is continuing to grow on the back of rapidly evolving and sophisticated techonology, writes Jane Simms.

THE BACKGROUND

As each of the main players in the video-games sector unveils its third-generation consoles, so the move toward convergence continues, with machines that offer greater multimedia capabilities. The market has also seen the emergence of games that encourage physical activity, through the use of motion-sensitive controllers, and those with an educational bent. The latter aims to reach a market outside the core male-oriented 16- to 24-year-old audience. They may also combat perceptions that video games are damaging to people's health and encourage violence.

UK consumers spend more on video games than health clubs, the cinema or nightclubs. For those concerned about the sedentary state of the British public, this is an alarming statistic. Last year the sector was worth pounds 1.8bn, up from pounds 1.5bn in 2004, and Mintel predicts it will rise again this year to exceed pounds 2bn in 2007.

The video-games market has been characterised by bursts of prodigious growth followed by periods of consolidation, as subsequent waves of hardware launches hit the market.

First-generation consoles have been succeeded by second- and third-generation machines, PCs have become more powerful and handheld devices are now lighter and more sophisticated. In turn, these developments have allowed the software publishers to produce more innovative and compelling games.

In the past five years, the hardware market has been dominated by three players: Sony, which has the biggest share of the static consoles market through its PlayStation offering; Nintendo, which has prevailed in the hand-held category with its Game Boy and DS brands; and Microsoft, which launched its next-generation Xbox 360 console last November, a full year ahead of its rivals' next-generation products. By contrast, PC gaming has fallen back.

In 2005, the games market was shaped by a trio of launches: the handheld Nintendo DS and Sony PSP, and the Xbox 360. The introduction later this year of the Nintendo Wii and a cheaper Xbox 360, along with next year's delayed launch of PlayStation 3, prices for which will start at EUR499 (pounds 335), are expected to boost the market further.

Saturated market

Household penetration of static consoles appears to have hit a plateau at about 30%, and many argue it has reached saturation point among 15-to-44-year-old ABC1 gamers.

Matthew Woodley, creative director at games developer Sega, believes that both software and hardware developers need to make their products more user-friendly to broaden their appeal. 'They have been obsessed with the technology's capabilities, even to the extent of the number of buttons on controllers, rather than what consumers want,' he says.

The latest generation of consoles is more intuitive, however. It is now easier to get online using the Xbox 360 than it was using earlier versions of the console, while the controller on the forthcoming Wii features a motion sensor that allows the user to replicate real-life actions - such as moving left and right - in a game. The Nintendo DS, meanwhile, has targeted older people, not least though content designed to 'train their brains'.

Another potential growth driver will be achieving 'convergence' by creating a single machine that can be used to play movies, games and music as well as viewing photos. Such a machine would be a central purchase for a household, rather than a leisure or discretionary one.

To foster growth, the industry also needs to address a number of negative perceptions about video games. These include the belief that they promote violence in children, reduce intelligence and are anti-social. It must also restrict anti-social content and prevent games falling into younger hands than those for which they are intended. …